Kim Michael-Lee joined the Iowa City Community School District in February to help rebuild the district’s financial infrastructure.
The interim CFO’s final report notes that the district did not committ any fraudulent activity or cover-ups as it continues to navigate a signficant financial crisis, which has led emergency loans and several cuts across the district.
Michael-Lee’s assessment revealed that years of inaccurate accounting, unreconciled records and weak controls fueled budget woes. She said there is no evidence that district officials engaged in fraud or attempted to hide the problems.
“During the time that I was at the district, I did not see any fraud or any steps that were taken to cover up,” Michael-Lee wrote in the report, which was shared in the district’s school board agenda for Tuesday, July 29. “I believe the new auditors’ review and audit of the FY24 financial statements and their ongoing audit for FY25 have instilled confidence that even though there were many inconsistencies and unreconciled statements, we did not find any fraudulent activities.”
Iowa City CSD climbing out of sizeable budget deficit
The eastern Iowa district, which is home to Iowa City High, Iowa City Wets and Iowa City Liberty High School, is in the midst of an ongoing financial crisis, leading to $7.5 million in spending cuts. The local district’s financial troubles emerged in January after the board was asked to retroactively approve a $10 million interfund loan to pay salaries, a move that outpaced the district’s projections and exposed years of inaccurate spending and revenue tracking.
Michael-Lee joined the district in February to replace former CFO Adam Kurth, who left in November 2025. In April, the district announced that Pat Moore would serve as its new CFO at the start of fiscal year 2027.
According to Michael-Lee’s final report, the district’s financial health was hampered by weak oversight, inadequate training and poor recordkeeping. Her findings indicate that financial statements had been prepared manually using incomplete and inaccurate data since FY2023, leaving officials and the board of directors without reliable information to make decisions.
“(Senior management and the board) did not have accurate information to base decisions on and therefore good governance couldn’t be done with incomplete and inaccurate financial statements and the lack of timely audits,” Michael-Lee wrote.
Bank reconciliations were three years behind and among the most serious issues. The lack of timeliness prevented auditors from completing required reviews and limited the ICCSD’s ability to accurately track cash balances.
The reports also addressed interfund borrowing, which first exposed the district’s financial troubles. Michael-Lee found that interfund transactions totaling more than $38 million were made in FY24 and were not properly monitored or repaid.
The issue stems from poor recordkeeping rather than a lack of funds, Michael-Lee determined.
What’s next for the Iowa City school district’s financial crisis?
As Moore begins her tenure as the districts new CFO, Michael-Lee notes that many of the financial issues can be addressed within the next year.
She said preventive actions include ideas to strengthen the district’s financial controls and oversight, stronger leadership in the business office, regular employee evaluations, enhanced staff training and standardized financial reporting procedures.
Michael-Lee suggests that bank accounts be reconciled monthly within “15 days of the end of each month,” since they are “critical to ensure payroll is met, bond payments made on time and vendors paid timely.”
Bringing the district’s audits up to date is also a main priority, since the FY2025 audit is scheduled to begin in August. Finalizing the report will allow the district to reapply for its bond rating.
Moody’s Investor Services, which rates the creditworthiness of school districts and governmental bodies based on economic factors and financial performance, revoked the district’s bond rating in October 2024 because of the incomplete audits.
Michael-Lee also recommend expanded oversight through the ICCD’s financial oversight committee, which the board will appoint during its meeting on Tuesday, July 28.
Jessica Rish is an entertainment, dining and education reporter for the Iowa City Press-Citizen. She can be reached at JRish@press-citizen.com or on X, formerly known as Twitter, at @rishjessica_
This article originally appeared on Iowa City Press-Citizen: Financial report clears Iowa City CSD of fraud amid budget crisis
Reporting by Jessica Rish, Iowa City Press-Citizen / Iowa City Press-Citizen
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By Jessica Rish, Iowa City Press-Citizen | USA TODAY Network
